US embassy cable - 03COLOMBO53

UNCLAS COLOMBO 000053 
 
SIPDIS 
 
LABOR FOR INTERNATIONAL AFFAIRS: SHALEY 
USDOC FOR ITA/ASTERN 
STATE PASS USTR 
 
E.O. 12958: N/A 
TAGS: ECON, ELAB, EINV, ETRD, PGOV, PHUM, CE, ECONOMICS 
SUBJECT: SRI LANKA'S PARLIAMENT PASSES GROUND-BREAKING 
LABOR REFORMS 
 
1. Summary:  The Sri Lankan Parliament passed three 
important bills containing ground-breaking, and 
contentious, labor reforms on January 8.  The bills contain 
new industrial dispute resolution and termination 
procedures.  The legislation is expected to improve 
industrial relations by prompt and equitable settlement of 
labor disputes.  The government was forced to incorporate 
last minute amendments to the bills to accommodate 
opposition demands.  Nonetheless, the reforms are a big win 
for the United National Front (UNF) government in its push 
toward further economic liberalization.  End Summary. 
 
2.  The Sri Lankan parliament on January 8 approved three 
bills containing important labor reforms.  The bills were: 
 
-- Amendments to the Industrial Disputes Act (hearing and 
determination procedure), which contained provisions for 
expeditious hearing and determination of industrial 
disputes including employment termination cases; 
 
-- Amendments to the Termination of Employment of Workmen 
(Amendment) Act (TEWA) containing new provisions for 
termination including compensation as an alternate to 
reinstatement, provision for a compensation formula by the 
government and granting employees the right to be heard by 
the Commissioner; 
 
-- Amendments to the Employment of Women, Young Persons and 
Children Act to increase fines and prison sentences for 
violating labor laws. 
 
3.  The first two amendments encountered heavy resistance 
from labor unions and opposition political parties.  The 
amendment to the termination of employment act drew the 
heaviest criticism, as the government was relaxing the 
termination procedure in the absence of an unemployment 
insurance or compensation scheme.  During the debate, the 
Labor Minister pledged that a comprehensive unemployment 
safety net would follow the current legislation.  According 
to Labor Ministry sources the Minister has also promised to 
conduct multi-party discussions regarding the compensation 
formula and to present the formula to Parliament for 
approval. 
 
4.  Parliament approved the labor amendments after one and 
a half days of debate.  The amendments met stiff opposition 
both within the Parliament and outside, with JVP-led trade 
unions leading protest campaigns on the streets of Colombo. 
In fact, after the Labor Minister presented the bills to 
parliament, parliamentary sittings were suspended for an 
hour when the opposition leader asked for a postponement of 
debate pending further discussion with trade unions.  The 
debate, however, went on.  Backstage maneuvering by the 
Prime Minister paved way for the passage of the bills, with 
amendments. 
 
5.  According to Labor Ministry sources, the amendments did 
not contain substantive changes to any of the reforms, only 
minor adjustments such as lengthening the proposed 
timeframe for dispute resolution.  The first two pieces of 
legislation were passed with 121 votes for and 68 against. 
The third, containing increased fines for violating certain 
labor laws, passed without vote. 
 
6.  Comment: Sri Lanka, already the most open economy in 
South Asia, has just taken a giant leap toward greater 
economic liberalization.  The passage of this legislation - 
which for months had been promised by the pro-business UNF 
government and resisted by the unions - was surprisingly 
quick.  The assurances of the Labor Minister that a social 
safety net would be in place for dismissed workers, some 
minor concessions, and maneuvering by the Prime Minister 
helped to get the job done.  These are critical steps for 
the government, which is eager to attract new foreign 
investment.  Sources tell us that the Prime Minister is 
preparing to move more quickly and aggressively on further 
economic reforms this year.  He has the popular support to 
make changes, but he will need strong political will to 
push the tougher ones through. End comment. 
 
Wills